Overview
Bank of America has taken a more positive stance on European software stocks as companies prepare to report second-quarter results. The brokerage says the sector's pronounced underperformance so far this year has opened what it views as an attractive risk-reward opportunity for investors.
Market context
While concerns persist among investors about potential disruption from generative AI and broader macroeconomic uncertainty, BofA highlights structural strengths in software businesses that should support resilience. In particular, the firm points to recurring revenue models and what it describes as improving prospects for AI monetisation as anchors for stability in revenue streams.
Sector outlook
BofA projects that software revenue growth will remain healthy, estimating growth of 9.4% in the quarter. Against that backdrop, the brokerage has identified a set of preferred names that it believes are positioned to outperform during the upcoming earnings season.
Company calls and targets
SAP was reiterated at "buy" with a price objective of 210. BofA expects SAP's cloud business to stay resilient even as cloud backlog growth moderates slightly from the previous quarter. The firm anticipates continued expansion in cloud revenue and operating profit underpinned by steady enterprise demand and ongoing AI adoption, and assigns an implied upside of around 53%. The stock was noted trading lower in recent moves - SAPG -6.1%.
Sage was maintained at "buy" with an unchanged price objective of 1,334 pence. BofA forecasts quarterly revenue growth of about 10%, which it says sits ahead of the companys guidance for annual growth of more than 9%. The brokerage cites Sage's subscription-based model and expanding AI capabilities as reasons it expects the company to deliver resilient earnings despite a softer macro backdrop. The price objective implies roughly 61% upside. Recent price action flagged SGE down about 3.64%.
Planisware remained a "buy" with an unchanged price objective of 28. BofA points to the company's recurring revenue base and a favourable long-term growth outlook as supportive of demand for its enterprise project management software, leaving an estimated upside near 36%. The stock has seen downward movement recently - PLNW -5.43%.
Temenos was also kept at "buy" with a price objective of CHF98 following only minor foreign exchange-related adjustments to BofA's estimates. The brokerage said those FX changes do not alter its constructive view of the banking software company's underlying business. BofA expects demand for digital banking solutions to remain supportive and calculates an implied upside of roughly 42%. The name was cited as TEMN -3.49% in recent trading.
Implications
BofA's recommendations emphasize recurring revenue, cloud adoption and AI monetisation as the central drivers supporting software earnings and valuation prospects. The brokerage's focus on these metrics underlines the areas investors and analysts will likely watch through the Q2 reporting season.
Limitations
The brokerage's stance is positioned against lingering investor concerns - namely generative AI disruption and macro uncertainty - that continue to weigh on sector sentiment. BofA's view is predicated on its revenue-growth forecast and company-level assumptions; if those do not materialise as expected, outcomes could differ.